Russia: Moscow Seeks Role As Alternate Oil Supplier To West

Russia has called a formal end to its oil-export restrictions in support of the OPEC cartel. The move before this week's summit coincides with Moscow's offer of energy cooperation with the United States, but the past six months may have set a poor example for market transparency.

Boston, 21 May 2002 (RFE/RL) -- Russia has dropped the last vestige of its cooperation with the Organization of the Petroleum Exporting Countries, just days before a summit meeting between presidents Vladimir Putin and George W. Bush.

On Friday in Moscow, Russian Prime Minister Mikhail Kasyanov announced plans to end Russia's export reductions, which were declared last December to help OPEC support prices in a slumping market.

After meeting with Russian oil-industry executives, Kasyanov said, "We decided that the time has come to gradually lift restrictions on oil exports," Interfax reported. The resumption of previous export levels will take place over the next two months, Kasyanov said.

The move, less than a week before the Moscow summit, which starts on 23 May, may raise hopes for the energy cooperation that Russia has offered to the United States. As the largest non-OPEC producer, Russia has cast itself in a new role as an alternate supplier to the West.

Speaking earlier this month at a Group of Eight ministerial meeting in the United States, Russian Energy Minister Igor Yusufov affirmed "Russia's readiness to become the guarantor of stability in the world market of energy resources."

Whether Russia's decision on OPEC is connected or not, the summit now seems likely to have an energy component to accompany the headline issues of security and arms control.

Late last month, U.S. Ambassador to Russia Alexander Vershbow told a Moscow press conference that energy cooperation would be part of an economic package to be taken up at the summit, the Russian official news agency RIA-Novosti reported. How far the cooperation will go is still unclear.

But Russia seems to have shifted the political focus of its energy policy, even if no change in its exports has actually taken place.

Analysts have been nearly unanimous since December in doubting that Russia's pledge of export reductions would give OPEC more than moral support. Russia's promise was to lower its daily exports by 150,000 barrels. The 5 percent decrease was supposed to be in proportion to the production cut of 1.5 million barrels per day from 10 members of the OPEC cartel.

But figures so far suggest that Russia has raised both its production and exports. Russian crude exports outside the CIS rose 4 percent in the first four months compared with the same period a year ago, Interfax reported. Oil output through April was up 8.8 percent.

The government still insists that Russia honored its pledge because of a narrow definition. After Russia's cuts were questioned, officials claimed that they applied only to exports through state-controlled pipelines and only in comparison to the third quarter of last year.

Those technicalities seemed to create a temporary glut of oil on Russia's domestic market, while allowing most Russian producers to continue their plans to boost production this year. Yukos, for example, pushed output up by 17 percent in the first quarter, not far from its forecast of a 24 percent increase for 2002.

Markets reacted calmly to Russia's announcement on Friday, as crude prices fell in London but rose in New York. Middle East tension, rather than concern about Russia, has driven the market for most of the past month.

A commentary Friday by RIA-Novosti took comfort in the lack of volatility after Kasyanov's announcement, saying, "Today's market complacency proves that Russia was correct in its forecasts."

In London, the Associated Press quoted Leo Drollas, chief economist for the Center for Global Energy Studies, as saying, "They didn't cut in the first place." Drollas called Russia's decision "a nonannouncement of no great consequence to man or beast."

But if Russia now plans to cooperate with the United States rather than OPEC, it remains to be seen whether the relationship will have any more substance. The decision by Russian oil companies to invest in production seems to suit U.S. energy policy because it puts more oil on the world market, though little Russian oil actually reaches U.S. shores.

If Russia's pledge to OPEC never really mattered, then perhaps its methods over the past six months did. The Russian government seems to have shown a heavy hand in calling Kremlin meetings of oil companies and announcing export decisions, whether the companies supported them or not.

Despite its growing commitment to free markets, the government also used its state-owned pipelines to pursue its policies. In addition, officials offered little to the world market in the way of transparency.

Washington seems likely to welcome greater cooperation with Russia and investment in its growth. But the world market may also welcome more independence for its oil companies and a reduced government role.